PARIS
— Bowing to public opposition and persistent street demonstrations, the French government Monday withdrew the controversial youth jobs law that Prime Minister Dominique de Villepin had brandished as a bid to liberalize and modernize France's slow-moving labor market.

"The necessary conditions of confidence and calm are not there, either among young people or companies, to allow the application of the First Job Contract," Mr. Villepin said in a brief speech. He said the now-defunct contract would be replaced by a series of measures to encourage employers to hire unqualified young people.

The retraction - expected to put an end to a crisis that has rocked the country for several weeks, closing schools and universities, snarling transport, and drawing millions of protesters onto the streets - was widely welcomed.

The French employers' union, MEDEF, was equally happy. "We hope ... that this marks the end of a crisis that has dented our country's credibility," the organization said in a statement.

Replacing the new contract, which would have allowed companies to fire young workers without giving a reason during their first two years on the job, will be a string of measures encouraging the creation of government-subsidized jobs for young people with no qualifications.

This approach, which will cost ;300 million euros ($360 million) a year, according to Labor Minister Jean-Louis Borloo, is in line with traditional French attempts to reduce unemployment that have not worked in the past, says Jean-Paul Fitoussi, a prominent economic analyst.

"We know very well [the new measures] won't solve the problem of unemployment," he predicts. "But the [First Job Contract] crisis could lead to something positive. It has shown ... whatcannot be done, and raised awareness that we have to do something" to reform French labor law to make the economy more globally competitive.

"There is a real demand now to negotiate forms of flexibility that offer some security, too," he says. "That's new. The government has learned it has to negotiate [reforms], and it should do so quickly."

Mr. Villepin, announcing the withdrawal of his plan, offered wide-ranging talks with employers and unions about labor reforms. "The debate is now open and we must not close it," he said. "I propose a dialogue without preconditions."

It is unclear, however, how strongly the government will be able to pursue its reformist agenda in the wake of the defeat that it has suffered at the hands of public opinion over the CPE, as the job contract is known in France.

Recent polls show Villepin's approval ratings at just 29 percent, while President Jacques Chirac enjoys the confidence of only 20 percent of the electorate in the light of their handling of the CPE debacle.